Before the age of e-commerce, department stores dutifully opened a special post-Christmas customer service section dedicated to handling returned products. Those customer service windows still exist; however, many after-holiday returns are now made via e-commerce channels. The staff at Wired magazine notes, “Everyone returns a gift or an impulse purchase now and then. Maybe it doesn’t fit. Maybe it doesn’t suit your taste. Maybe you ordered something on a whim (or you snagged an awesome deal) and now you have buyer’s remorse. Or maybe you just read a book extolling the virtues of minimalism and want to give that lifestyle a swing.”[1] This holiday season, however, you may find it a bit harder (or more costly) to return an unwanted or ill-fitting gift. The staff at SupplyChainBrain explains, “Overstocked retailers are cutting back on lenient pandemic-era return policies heading into the holiday season.”[2]

The Returns Conundrum

Today’s consumers take a lot of factors into consideration when they make a purchase — including product availability, price, delivery dates, and return policies. Supply chain journalist Brian Straight explains, “The returns experience plays a large role in the overall customer experience and can make or break a future sale.”[3] The problem facing retailers is that a generous returns policy can cost them a lot of money. The SupplyChainBrain staff reports, “Many companies during the pandemic worked to make online returns easy and free to appeal to homebound customers, fueling a habit of buying several items at once and returning unwanted items. But the pattern has become costly for retailers, with the National Retail Federation estimating about 17% of all merchandise bought in 2021 was returned, totaling $761 billion.” Faced with this conundrum, more and more retailers are opting to rein in generous return policies.

The returns problem is particularly troubling for e-commerce and omnichannel retailers. According to the National Retail Federation Online 16.6% of all merchandise purchased in the U.S. in 2021 was returned — “a jump from an average return rate of 10.6% in 2020.”[4] The rate of returns for online sales is slightly higher at 20.8%. That’s a trend that brands and retailers would obviously like to reverse. Walter Loeb, President at Loeb Associates Inc., asks an important question, “Can stores stop free returns here in the U.S.?”[5] He reports, UPS claimed to have handled 60 million returns after Christmas last year, which is 10 percent higher than in 2020. He adds, “It is no surprise since more customers are now trained to use the internet for purchases.” The answer to Loeb’s question — Can stores stop free returns here in the U.S.? — seems to be “yes.” Supply chain journalist Robert J. Bowman reports that e-tailers are beginning to resist this growing trend. “Message to online shoppers who have enjoyed the perk of ‘100% satisfaction-guaranteed’ returns,” he writes, “Your free ride is coming to an end.”[6]

Bowman adds, “E-tailers desperate to reel in fickle customers have long offered free returns, and they’ve paid a steep price for it. They’ve reasoned that it’s better to eat the cost of a return than lose the business altogether. And shoppers have taken full advantage, buying items in multiple colors and sizes, selecting which ones they want, then sending back the rest. In essence, they’ve been treated the web as a virtual fitting room, costing retailers billions of dollars’ worth of logistics expense each year. … For brands and retailers, e-commerce costs, especially those associated with the movement and processing of returned merchandise, are skyrocketing.”

To offset the cost of processing returns, some e-tailers are beginning to charge customers who return merchandise. Bowman reports, “For the most part, returns fees now being imposed by e-tailers are modest in size, and far from reflecting the actual cost of returns. The idea is to psychologically prepare the consumer for paying anything at all for returns — and make them think twice about using the practice on a regular basis.” As the airline industry has proven, once fees become common place, they rarely go away.

Dealing with Returned Items

According to Jay Sackos, Vice President at Dolly and a returns expert, “There’s no magic bullet when it comes to conquering reverse logistics.”[7] However, he and other experts offer a few suggestions for how to deal with the returns challenge. They include:

• Third-party partners. Sackos reports, “Many retailers have turned to third-party logistics providers. These organizations address transportation and storage issues by taking the items directly back to a warehouse or restocking sites, or even to locations for responsible recycling. 3PLs may also handle customer refunds and supply chain and inventory management, depending on their expertise.” Journalist Michael Corkery reports retailers are using this option for overstocked merchandise as well as returns. He writes, “While some retailers are discounting the surplus within their stores, many would rather avoid holding big sales themselves for fear of hurting their brands by conditioning buyers to expect big price cuts as the norm. So retailers look to liquidators to do that dirty work.”[8]

• Frictionless returns. According to Sackos, “Retailers have also embraced frictionless return solutions, whereby customers are presented with several return options to make the process smoother. In addition, the solution is controlled heavily by software, which fully automates the process.” Frictionless returns means that merchandise can be returned to some locations regardless from where the products were purchased. Sackos notes, “The returns are accepted without packaging and labels, with the average visit taking less than 60 seconds. During that time, exchanges, refunds, and store credit are issued immediately.”

• Re-commerce. Retail journalist Helen Atkinson notes, “Many goods sold in the U.S. originate with sellers in China.”[9] This is a particular problem for large and bulky items that consumers wish to return. Atkinson writes, “If these can be processed for ‘re-commerce’ by identifying opportunities to sell and deliver returned items more locally, the benefits include saving money, cutting waste and increasing sustainability.” She adds, “Re-commercing is set to grow in importance as retailers in the U.S. and other major markets face the unpalatable fact that they over-estimated demand for multiple product lines such as appliances and home-improvement supplies, and are stuck with a giant glut of inventory.”

• White-glove returns service. One final option identified by Sackos is for high-end consumers. He explains, “[White-glove returns service] works just like traditional white glove delivery, but in reverse. In this case, the service provider comes into a home and inspects, disassembles and packages whatever item needs returning. Many traditional carriers won’t offer a service like this, but there are delivery and reverse logistics partners that include re-packing and re-palletizing as part of the returns process. This can be a key component of a truly exceptional retail customer experience, and can drive repeat business when the customer is ready to purchase again.”

Concluding Thoughts

Sackos concludes, “A more efficient return process is good for the retailers and customers. More streamlined operations can lead to quicker turnaround and possibly lower costs for the former. For the latter, a smooth return process can build customer trust and loyalty and hopefully lead to more sales.” At the same time, they must continue to wrestle with the rising costs of reverse logistics. Bowman concludes, “E-tailers probably won’t ever be able to cover the total cost of logistics in fees, especially for forward logistics where one-day or even hour-specific deliveries are involved. But they can ‘disincentivize’ the returns portion for shoppers who have come to expect it as part of the retail value proposition.” In other words, returns policies must walk the fine line between alienating consumers and absorbing disastrous costs.

Footnotes
[1] Staff, “How to Return and Exchange Your Unwanted Gifts or Purchases,” Wired, 26 December 2021.
[2] Staff, “Retailers Rein In Returns,” SupplyChainBrain, 2 November 2022.
[3] Brian Straight, “Free stuff: Returnless refunds can define the customer journey,” FreightWaves, 30 September 2021.
[4] Helen Atkinson, “Re-Commerce is Buzzword at Home Delivery World 2022,” SupplyChainBrain, 31 August 2022.
[5] Walter Loeb, “Free Internet Returns Are Costly — Will Consumers Have To Pay?” Forbes, 23 May 2022.
[6] Robert J. Bowman, “E-Tailers No Longer Want to Pay for Your Returns,” SupplyChainBrain, 22 August 2022.
[7] Jay Sackos, “How Retailers Are Taking On a Tsunami of Returns,” SupplyChainBrain, 22 April 2022.
[8] Michael Corkery, “Retail’s ‘Dark Side’: As Inventory Piles Up, Liquidation Warehouses Are Busy,” The New York Times, 30 July 2022.
[9] Atkinson, op cit.